Direct funds – What are direct funds & Differences between a regular plan and direct plan.

Updated on: May 27th, 2025

8 min read

When it comes to growing your wealth, your chosen plan can be just as crucial as the fund itself. Imagine investing in the same mutual fund, but one version quietly earns you more over the years, simply because you skipped the middleman. That’s the quiet power of Direct Mutual Fund Plans, low-cost, high-return options that many investors overlook.

What Are Direct Funds?

Direct funds are mutual fund plans where you invest directly with the fund house, without involving agents or brokers. Since there’s no intermediary, you save on commission charges, and that saved cost gets added back to your returns. SEBI introduced these plans to give more power and control to investors like you. In short, you manage your investments and get rewarded for it.

Unlike regular plans with hidden charges, direct plans let you stay in complete control. You pick the fund and invest straight through the AMC, and nobody’s taking a cut. It’s for people who like knowing exactly where their money goes and what it’s earning. And don’t worry, thanks to today’s apps, doing it yourself isn’t complicated at all.

How Does Direct Funds Work?

First, with direct funds, you choose the mutual fund scheme you want, be it equity, debt, hybrid or any other. But instead of going through a bank, broker, or third-party platform, you invest directly through the fund house’s website or app. This slight shift in the route makes a big difference because it cuts out the middleman.

Once your money is invested, it’s pooled along with other investors' money and managed by professional fund managers. The fund manager’s job is the same whether it’s a direct or regular plan; they pick the right stocks or bonds to grow your investment. The only change is the cost; the direct plans carry lower expense ratios, so more of your money stays invested.

Your investment grows based on the scheme's market performance as time passes. You can track it easily through online dashboards or apps. And because no commissions are being deducted quietly, you’ll notice that direct plans often show slightly better returns over the long run. It’s a wise choice, especially if you like doing things your way.

Features Of Direct Funds

Invest directly with the mutual fund company; no intermediaries are involved.
Lower expense ratio compared to regular plans.
No distributor or commission charges.
Higher returns in the long run due to cost savings.
Ideal for self-directed, confident investors.
Available through AMC websites, apps, and trusted online platforms.
The same portfolio and fund manager are used as regular plans.
Transparent structure with complete control over investments.
Suitable for long-term wealth creation.
Easy to track and manage through digital platforms.

What Are Regular Funds?

Regular funds are mutual fund plans where you invest through a third party like a broker, bank, or advisor. These middlemen help you choose and manage the fund, but they charge a commission for their services. That commission is included in the fund’s expense ratio, slightly reducing your returns. It’s a convenient option for beginners who want guidance with their investments.

Direct Funds vs Regular Funds

While both direct and regular plans invest in the same mutual fund scheme, your path makes all the difference. From costs and control to returns and convenience, the two options offer very different experiences.

Aspect	Direct Funds	Regular Funds
Who You Invest Through	Directly with AMC (fund house)	Through an agent, broker, bank, or distributor
Commission Charges	No commission charged	Commission included for the intermediary
Expense Ratio	Lower, as there are no distributor fees	Higher due to commission fees
Returns	Slightly higher due to lower cost	Slightly lower, reduced by distributor cut
Transparency	High – you control every step	Moderate – some steps managed by the distributor
Advice & Support	No advice – fully self-managed	Advisory and support services included
Best Suited For	DIY investors with some experience	Beginners who need help choosing funds
Investment Platforms	AMC websites, MF Central, Coin, Groww	Banks, brokers, financial advisors, and third-party portals
Control Over Portfolio	Complete control – you select, track, and change funds	Partial control – advisor may manage and rebalance
Monitoring Tools	Depends on the platform, usually app-based	A broker/advisor may give regular updates
Customisation Options	High–tailored to your goals manually	Limited – based on advisor recommendations
Fund Manager & Scheme	Same as regular plan	Same as the direct plan
NAV (Net Asset Value)	Slightly higher NAV as there are no hidden costs	Slightly lower NAV due to expense cuts
Ease of Use	Simple with online apps, but requires awareness	Convenient, as the advisor does most of the work
Long-Term Wealth Creation	More efficient – lower costs compound better returns	Slower compounding due to higher expenses
Switching Cost	Easy and free through AMC platforms	May involve exit loads and paperwork via an intermediary
Documentation & KYC	Done online during direct setup	Handled by an advisor or a bank
Popular Among	Tech-savvy, cost-conscious investors	Newbies, busy professionals needing handholding

Direct vs Regular Plan – Lump Sum & SIP Return Breakdown

Aspect	Bhavya (Direct Plan)	Varsha (Regular Plan)
Plan Type	Direct	Regular
Investment Method	Lump Sum	Lump Sum
Amount Invested	₹5,00,000	₹5,00,000
Annual Return Rate	12%	10.5%
Duration	10 Years	10 Years
Final Value	₹15,52,925	₹13,58,490
Total Profit Earned	₹10,52,925	₹8,58,490
Extra Earned by Bhavya	₹1,94,435	–

In this case, Bhavya and Varsha invested five lakhs in the same mutual fund. But Bhavya chose the Direct Plan, which gave her higher returns because no commissions or extra charges were eating into her profits. Over 10 years, that slight difference added up to nearly ₹2 lakhs extra in her pocket.

Aspect	Bhavya (Direct Plan)	Varsha (Regular Plan)
Plan Type	Direct	Regular
Investment Method	Monthly SIP	Monthly SIP
SIP Amount	₹5,000/month	₹5,000/month
Total Investment	₹6,00,000 (₹5,000 × 120 months)	₹6,00,000 (₹5,000 × 120 months)
Annual Return Rate	12%	10.5%
Duration	10 Years	10 Years
Final Value	₹11,61,695	₹10,76,193
Total Profit Earned	₹5,61,695	₹4,76,193
Extra Earned by Bhavya	₹85,502	–

Even with a simple monthly SIP of ₹5,000, Bhavya ended up earning ₹85,000 more than Varsha over 10 years just by choosing the Direct Plan. The investment amount was the same, but lower costs helped her money grow faster. This shows that even small savings in expense ratios make a big difference when invested consistently.

Advantages Of Direct Funds

Lower expense ratio, so more of your money stays invested.
No distributor or commission fees.
Higher returns over the long term compared to regular plans.
Complete control over your investment decisions.
Transparent investment process with no hidden charges.
Access to the same fund manager and scheme as regular plans.
Easy to invest online through AMC websites and apps.
Ideal for financially aware and self-directed investors.
Helps build wealth faster through cost savings.
Great for long-term goals like retirement or wealth creation.

Who Should Choose Direct Plans?

Direct mutual fund plans are an excellent fit for investors who are comfortable making financial decisions. If you enjoy researching funds and tracking performance and don’t need ongoing advice, this route is perfect for you. It’s ideal for cost-conscious, tech-savvy individuals who want to maximise returns by avoiding commissions. However, if you're just starting or prefer someone to guide you, a regular plan might offer the support you need while you build confidence.

Conclusion

Regarding mutual funds, even your route can shape your financial future. Direct plans may seem small in difference, but over time, they deliver real gains by cutting costs. They're a smarter, more rewarding option if you’re confident enough to take charge. After all, in investing, it’s not just what you choose, it’s how you choose that truly matters.

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Frequently Asked Questions

What is a direct mutual fund?

A direct mutual fund is one where you invest directly with the fund house, avoiding intermediaries and saving on commission fees.

What is the difference between direct and regular mutual funds?

Direct funds have lower expense ratios and no broker commissions, while regular funds involve intermediaries and slightly lower long-term returns due to added costs.

Why do direct mutual funds give better returns?

Because there are no commission charges, more of your money stays invested and compounds, leading to higher returns over time.

Who should choose direct mutual fund plans?

Investors who are comfortable making independent financial decisions and want to save on costs should go for direct plans.

What is the 7-5-3-1 rule in SIP investing?

It’s a thumb rule suggesting average returns from equity SIPs over time: 7% in 1 year, 5% in 3 years, 3% in 5 years, and potentially 1% monthly growth in long-term SIPs though actual returns vary based on market

About the Author

REPAKA PAVAN ADITYA

Stocks and Mutual Funds Research Analyst

I manifest my zeal in financial quantitative & quantitative research and have been instrumental in creating a robust process for the evaluation and monitoring of mutual funds. I’m responsible for Equity and Mutual Funds Research while creating instrumental mathematical models for portfolio construction after evaluating funds, and I play an integral role in analyzing changes in mutual funds, micro, and macro-economic indicators, and equity market events and trends. My views on asset classes which are integral in creating an investment strategy for any profile. Read more

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